Sunday, December 18, 2011

It's All About Confidence

The power of confidence in determining market conditions cannot be underestimated. Confidence, or the lack thereof, often encourages irrational behavior and unpredictable decision making. The Thoroughbred industry is no exception. The industry is based on many tangible factors and sound fundamentals, but confidence and opinion appear to dictate.

The results achieved at auctions over recent months highlight this point. Gross, average and median figures soared to record levels in many instances, which was a welcome relief, but somewhat unexpected. Of course, there were several unique factors at play, including quality dispersals at Keeneland November, but much of it was simply down to market confidence. The ball got rolling at Fasig-Tipton in August and just kept on rolling.

What has changed so much in the past 12 months? The short answer is not a whole lot. The industry is still plagued by a number of inherent weaknesses, and the wider macroeconomic environment remains unstable. People just wanted to invest in horseflesh in the latter part of 2011, whether that be weanlings, yearlings or breeding stock. The majority of this was fueled by domestic demand, aided by the usual strong international presence.

Despite the recent upturn, it’s important to prevent complacency setting in. Industry participants have had a tendency to bury their heads in the sand, although this mentality has changed slightly in recent times. Several critical issues need to be addressed, sooner rather than later. Personally, I find the growing reliance on slot money a most worrying development. Gaming companies, that supplement purses in the first few years to gain acceptance will not continue to prop up racing--and why should they? This whole dependency reminds me of the Irish racing industry’s reliance on government funding a few years back. It’s an unsustainable model, and the industry would be better served using it as a crutch while searching for self-financing solutions.

Without question, the recent sales have been a tremendous boost after a few tough years. Breeders, owners, et al. are looking to 2012 with renewed optimism. However, market confidence is very fickle and tends to ebb and flow. The industry has and always will be sensitive to fluctuations due to its very nature. Saying that, a largely self-financed model that promotes quality over quantity would reduce the negative ramifications associated with these swings.